Working with real estate investors can be a wise investment in your career.
By Daniel Rome Levine
Helping clients who are buying properties as an investment rather than a place to call home can yield positive returns for you as well as for them. Knowing what it takes to succeed in this highly specialized market is critical. In the following pages, CRS members share their experiences and tips for success.
Working with Investors: Part One
Where in the U.S. are investors buying real estate?
One of the most important things to know when working with investor clients, says Bob Leonard, CRS, with RE/MAX Associates in San Antonio, Texas, is the complete absence of emotion involved in the transaction. Theres no beaming young couple here clutching their newborn baby as they prepare to enter their dream home for the first time. This is far more cold-blooded. Your typical homebuyer is looking for a home they can fall in love with, says Leonard. Investors dont have to fall in love with anything. It is strictly about the numbers. If the numbers work, the deal will work. Thats it.
Helping clients find the best investment properties requires researching and analyzing these numbers from many different angles from the most basic, such as the sale and rental prices of comparable homes in a neighborhood, to helping an investor project their expected return on investment, monthly income, profit and likely appreciation.
Leonard has been busy helping investors crunch the numbers. He says the local investment market is as hot as hes ever seen it in his 30 years selling real estate in San Antonio. Activity is being driven by a strong local economy, affordable home prices, low taxes, rock-bottom interest rates and strong demand for rental properties from workers connected to one of the countrys biggest shale oil fields, which is nearby.
Why are investors buying real estate?
Average home prices sit at just over $200,000, a jump of $50,000 in the past two years, says Leonard, but still mighty affordable, especially to out-of-town investors from big cities like New York or Chicago. Leonard says a $200,000 single-family home in a good school district can easily generate over $2,000 a month in rental income for an investor.
BEWARE GET-RICH-QUICK INVESTORS
There’s a good chance that if you’re working with real estate investors you will cross paths with people who are trying to make a quick buck by following a seminar or other such program promising overnight millions. These seminars are typically advertised on late-night TV infomercials and people often pay thousands of dollars to sign on.
Bob Leonard, CRS, with RE/MAX Associates in San Antonio, Texas, says many of these seminars advise people to make half-price offers on numerous properties and they want a local REALTOR® to be their guide. “They are just driving around town throwing repeated offers up against the wall to see if they stick,” says Leonard. “I’ve had people contact me and try to make these offers that you know aren’t going to work. They aren’t realistic and they are a waste of your time. Agents need to be aware that these people are out there.”
WORKING WITH INVESTORS: PART two
In Memphis, real estate investors are singing the blues because they cant get their hands on as many properties as theyd like. Inventory is so tight and demand so strong that long waits and bidding wars are the norm, says Verna Littleton, CRS, a broker with Kaizen Realty in the suburb of Germantown. When one of these properties comes on the market, its just a feeding frenzy, she says.
A 2,000-square-foot single-family home that would cost $500,000 in San Francisco…
For example, when a three-bedroom, two-bath, single-family home that needed a new roof and other improvements recently came on the market for $14,000, the sharks started biting. Within 30 minutes of the house hitting the market, it had five offers from investors and the price had been bid up to a final sale price of $20,000, a jump of more than 40 percent. Theres just not a lot available, says Littleton.
The same is true nationally. Sales of investment homes last year decreased 7.4 percent from 2013 to an estimated 1.02 million, according to the National Association of REALTORS® (NAR). Rising home prices and fewer distressed properties coming onto the market have further reduced the number of bargains available to turn into profitable rentals, explains Lawrence Yun, the NARs chief economist.
…would sell for under $150,000 in Memphis.
One of the biggest factors drawing real estate investors to Memphis, says Littleton, is that prices are considerably lower than other larger American cities. A 2,000-square-foot single-family home that would cost $500,000 in San Francisco, for example, would sell for under $150,000 in Memphis, she says.
Out-of-town investors see Memphis as a gold mine because they can come in and buy properties for little or nothing compared to what they are used to seeing in their local markets, she says. Its a huge difference.
Littleton says education is key to establishing yourself as the go-to REALTOR® for investment properties in your local market. Its critical to learn the ins and outs of buying and selling different types of investment properties, especially distressed ones, such as those being auctioned by banks or foreclosure properties from HUD or Fannie Mae.
Each of these agencies has different guidelines and you need to know what youre doing when these properties become available, says Littleton. Youre going to be dealing with investors who have cash on hand and are ready to go right away. You dont want to be fumbling around trying to figure out what to do at the last minute.
Littleton recommends REALTORS® join well-regarded local real estate investment clubs and be on the lookout for investment seminars held by HUD and other government agencies. There is also ample information online.
Whats going to separate you from other agents is your level of education and your quick, knowledgeable response to buyers, she says. You’ve got to help them find those deals before anyone else does.”
WORKING WITH INVESTORS: PART three
Doug Richards, CRS, in Salt Lake City, Utah, bought his first investment property, a single-family home, some 40 years ago. Today, he has investments in nearly 200 properties, from duplexes to apartments to commercial properties such as fast-food restaurants, convenience stores and warehouses. Over three decades, he has shared his knowledge with countless REALTORS® as a certified CRS instructor of the course, Buying and Selling Income Properties (CRS 204).
To be effective helping clients buy investment properties, says Richards, you have to help them understand where their profit is going to come from. Richards uses the acronym IDEAL to help drive this point home:
- Income, which is the cash flow you will receive from rental properties.
- Depreciation, or the tax savings that might be available from owning rental property.
- Equity buildup. There is no greater way to build wealth systematically than to have your tenants reduce your debt for you, says Richards.
- Appreciation, or the increase in value your investment property should gain over time.
- Leverage. The power of earning a rate of return from your investment that is significantly greater than the cost of the money you are borrowing.
Educating your investor clients so they understand these factors is one of the most valuable services you can provide as a REALTOR®, says Richards. And who better to help clients understand real estate investing than REALTORS® themselves, he says. One of the great things about REALTORS® helping clients invest in real estate is that we understand it, we get it, he says. We know better than anyone the resources out there to help clients make the most informed decisions.
